India’s Tax Treaty with Mauritius Leading to Revenue Losses

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Aug. 9 – India’s tax treaty with Mauritius is leading to revenue losses amounting to at least Rs. 20 billion annually.

Under India’s Double Taxation Avoidance Agreement (DTAA) with Mauritius, capital gains from the sale of shares will be taxed in the investor’s country of residence. This works in favor of companies based in Mauritius because the country currently does not tax capital gains. Tax losses also happen when firms registered in Mauritius invest in non-securities sectors in India.

“The arrangement with Mauritius is causing a tax loss in excess of Rs. 2,000 crore per annum on account of investments in the Indian securities market alone,” a Finance Ministry official said.

The DTAA, in addition, does not provide an adequate rule for the “exchange of information” that will allow India to effectively investigate tax avoidance cases.

India plans to renegotiate the terms of its DTAA with Mauritius with an emphasis on cutting out tax evasion.

“Money routed through Mauritius could be kickback money transferred abroad or money stashed abroad via under-invoicing of exports or over-invoicing of imports,” said Minister of State for Finance  S.S. Palanimanickam in a statement.